India Infrastructure Finance Company (IIFCL) is the latest to announce their infrastructure bonds under section 80CCF*. Very similar in working to the other previous issues by IDBI, L&T, REC, IFCI etc., this Rs. 1,200 crore issue too, offers a tax exemption for investments up to Rs. 20,000. Here are the basic details and benefits this issue has to offer, in terms of returns and as a tax saving tool.
*Section 80CCF offers investors a tax deduction of up to Rs 20,000 over and above the Rs. 1, 00,000 deduction available under section 80C, 80CCC & 80CCD.
Issue Date
Issue opens: February 4, 2011
Issue closes: March 4, 2011
Who Should Invest in These Bonds?
Ø If you are looking at saving some additional tax (over and above the prevailing section 80C, 80CCC& 80CCD), investing in these infrastructure bonds could well be an option.
Ø Investing in these bonds could help save up to Rs. 6,180 on a Rs.20,000 investment, for people in the highest tax bracket of 30%. For those in the 20% tax bracket, the saving could be up to Rs. 4,120, and those in the 10 % tax bracket, the saving could be up to Rs. 2,060.
Ø If you are a risk averse investor, these bonds could suit you quite well. IIFCL is a wholly owned government company, thus you need not worry about the safety of your investments.
Key Features
The main difference between IIFCL and the previous other infrastructure bond issues under section 80CCF, is predominantly the interest rate offered. Here are the key features of the issue.
1) Credit Rating
Bonds have credit ratings of “AAA/Stable” by CRISIL and CARE. This indicates highest safety with regard to timely servicing of debt.
2) Minimum Application Amount
The bonds come with a face value of Rs. 1,000. Investors need to subscribe to a minimum of five bonds and in multiples of one bond thereafter.
3) Investment Options Available
There are 4 investment options in this bond issue.
Series 1: Offering 8.15% annual coupon with a maturity of 10 years and a buyback after 5 years.
Series 2: Offering 8.15% cumulatively with a maturity of 10 years and a buyback after 5 years.
Series 3: Offering 8.30% annual coupon with a maturity of 15 years and a buyback after 7 years.
Series 4: Offering 8.30% cumulatively with a maturity of 15 years and a buyback after 7 years.
4) Option of Application in Demat as well as Physical Form
Bonds could be held in Demat as well as physical form. However Bonds in physical form however attract a TDS for interest exceeding Rs. 2500.
5) Listing and Trading of the Bonds
The bond is proposed to be listed on the BSE. After the lock in period of 5 years, trading is permitted, but in dematerialized form only.
Issue At a glance
| Bond Series | Series 1 | Series 2 | Series 3 | Series 4 |
| Face Value of Bond | Rs. 1,000 | Rs. 1,000 | Rs. 1,000 | Rs. 1,000 |
| Interest Rate Offered | 8.15%p.a. | 8.15%p.a. | 8.30%p.a. | 8.30%p.a. |
| Frequency of Interest Payment | Annual | Cumulative | Annual | Cumulative |
| Time of Maturity | 10 Years | 10 Years | 15 Years | 15 Years |
| Buy Back | After 5 years at Rs. 1,000 | After 5 years at Rs. 1,480 | After 7 years at Rs. 1,000 | After 7 years at Rs.1,747 |
| Maturity Amount | Rs.1,000 per bond | Rs. 2,189 per bond | Rs.1,000 per bond | Rs. 3,307 per bond |
Drawbacks of the Bond
Ø The interest earned from these infrastructure bonds shall be treated as income from other sources and shall form part of the total income of the assessee in the financial year in which they are received. So the actual benefits may be reduced on account of this.
Ø The bonds are locked in for a minimum period of five years. So be doubly sure that you would not require the invested amount any time mid way.
Written by Ramya Ramachandran
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